Another big Dell stockholder says no to buyout as resistance mounts

Dell's leveraged buyout deal has run into more resistance. Today, T. Rowe Price Chief Investment Officer Brian Rogers said that his company would vote against the buyout.

"We believe the proposed buyout does not reflect the value of Dell, and we do not intend to support the offer as put forward," Rogers said in a statement to Reuters. That echoes the statement issued by Southeastern Asset Management last week, when that firm announced it would oppose the deal on the grounds that it believed Dell was worth twice what the buyout offered.

Reuters reports that three other large Dell investors are also planning to vote against the company's plan.

Between the two investors, T. Rowe Price and Southeastern are estimated to control about 13 percent of Dell's outstanding shares (4.4 percent and 8.5 percent, respectively). The other firms leaning toward opposing the deal own roughly another 5 percent of Dell's stock. And as a block, the group could sway other smaller investors to give them their votes in a potential proxy battle with Dell's management.

The terms of the buyout offer give Dell 45 days to "go shop" for better offers for the company. But the terms also give Michael Dell and Silver Lake the right to match any other deal and make it more expensive for other bidders to try to buy the company. And in the event that someone does come up with a winning bid, Michael Dell would still walk away a winner—as they would have to buy his 16 percent stake in the company.

38 Reader Comments

This is the same exact thing everyone says. No matter what the price is, it's never enough. Remember when Yahoo turned down Microsoft because $44 Billion wasn't enough and "substantially undervalues" the company". Right. And we know how ell that worked out.

SilverLake should insist on going ahead and shopping for additional buyers. If the solicitation was done properly the first time, there would be no one there and they could argue the price is too high. These investors in that light could end up shooting themselves in the foot.

Posturing. I doubt much will come of it. I'd be shocked if they didn't line up a large enough group of shareholders to agree to it anyway. Some of the minority shareholders might get some kind of "shut up and go away" compensation, though.

I would think that Dell and supporting partners would have anticipated something like this before making their move. (Understandably the very definition of being a publicly-traded company is that your operation is, in fact, knowable to the public.) This last-minute opposition seems like there wasn't enough due-diligence, but I don't know how this sort of thing normally gets done.

How does this sort of thing work? If 50%+1 of the shareholders balk at the sale price, does the thing just fall apart? Or can a group that represents 25% or less put the brakes on the whole thing? Can shareholders be forced to sell back their shares? So if some 80 year old with one share doesn't want to let go of his share, does it go private anyway, but he still gets to keep his share?

If Dell was in fact worth twice the asking price, wouldn't the stock value be higher? Wouldn't these institutional investors be snapping up all the shares they could buy at current prices? Seems like posturing to me.

The shareholders are going to be the death of Dell. They want more money for their shares but then will leave no breathing room from debt for Dell to reconstruct itself, stopping Dell from the buyout. Dell at its current state then will just lower in value because it is not free to make its necessary large change in the way it does business to adapt to the changing landscape. Then like with Facebook, the shareholder will sue because they put there money in a company that can no longer increase its revenue without the dramatic change it wanted to do in the first place. The shareholders should take what they can get, which is already higher that what the trade value was, and run with the money.

If Dell was in fact worth twice the asking price, wouldn't the stock value be higher? Wouldn't these institutional investors be snapping up all the shares they could buy at current prices? Seems like posturing to me.

Yeah, that's the intent of a stock market, but the reality is that the connection between the worth of a company and it's price is extremely tenuous.

If Dell was in fact worth twice the asking price, wouldn't the stock value be higher? Wouldn't these institutional investors be snapping up all the shares they could buy at current prices? Seems like posturing to me.

How does this sort of thing work? If 50%+1 of the shareholders balk at the sale price, does the thing just fall apart? Or can a group that represents 25% or less put the brakes on the whole thing? Can shareholders be forced to sell back their shares? So if some 80 year old with one share doesn't want to let go of his share, does it go private anyway, but he still gets to keep his share?

It would depend on how or what the opposition does.

At this point, their goal is to try and build support. They need enough support to challenge Mr. Dell and his allies.

Now whether they can build enough support will be decisive. If they cannot, well, then Dell can likely buy a controlling interest. At that point, Dell is in control. They can try to take it to court and take legal action, but chances are they'll lose.

Now if they win, that's where it gets ... unpredictable. Dell could make a counteroffer. Or the whole thing could fall apart. Or some other party could step in.

The shareholders are going to be the death of Dell. They want more money for their shares but then will leave no breathing room from debt for Dell to reconstruct itself, stopping Dell from the buyout. Dell at its current state then will just lower in value because it is not free to make its necessary large change in the way it does business to adapt to the changing landscape. Then like with Facebook, the shareholder will sue because they put there money in a company that can no longer increase its revenue without the dramatic change it wanted to do in the first place. The shareholders should take what they can get, which is already higher that what the trade value was, and run with the money.

The thing is - these shareholders don't care about Dell. They just want the money.

It's one of the criticisms of Western capitalism. People buy shares for the purpose of them appreciating in value. But the thing is - they don't care about the company, what it does, how it makes money, the well being of employees (or the public), etc. They are just temporary owners of stock.

How does this sort of thing work? If 50%+1 of the shareholders balk at the sale price, does the thing just fall apart? Or can a group that represents 25% or less put the brakes on the whole thing? Can shareholders be forced to sell back their shares? So if some 80 year old with one share doesn't want to let go of his share, does it go private anyway, but he still gets to keep his share?

The primary source for this type of information is the U.S. Securities and Exchange Commission and the regulatory documents that Dell and the other involved entities such as Southeastern Asset Management file with the SEC, documents that are available via an online search of the SEC.gov Filings (EDGAR) database. For instances, in its DEFA14A filing on Feb. 5, Dell states that, "In addition to the requirement that the holders of a majority of the Company’s outstanding shares vote in favor of the transaction, which will be sought at a special stockholder meeting, the merger agreement further provides that the transaction must be approved by the holders of a majority of the Company’s outstanding shares, excluding shares held by Mr. Dell and certain members of Dell’s management and Board of Directors." You'd have to dig into other filings to identify how many shares Mr. Dell and the others own (probably a different DEF14A filing from earlier in the year) and then subtract that from the whole to get the final percent required. Assuming that enough votes are cast, the going-private transaction will be consummated and all shares will be bought back -- nobody will be able to retain any shares in the publicly traded Dell. Things are currently in the posturing stage, with a couple large shareholders trying to put pressure on Dell and its partners to increase the buyout price. For instance, Southeastern Asset Management in its Schedule 13D filing on Feb. 8 said it believes Dell to have a total corporate value approaching $24.00 per share, with an explanation in the filing of how it got to that dollar amount. Doesn't look like the activist shareholders have the numbers yet to drive the buyout price higher, but time will tell.

I have no clue how taking a company private works, but I'm curious how much of this is posturing. Yes, Dell/Microsoft/Silver Lake offered a 37% premium, but you can always ask/threaten for more.

It's common to offer a 20-60% premium depending on how much you think the stock is worth. But these shareholders want a premium of close to 100% (based on Dell's price in early February) and what Southeastern has said.

This is the same exact thing everyone says. No matter what the price is, it's never enough. Remember when Yahoo turned down Microsoft because $44 Billion wasn't enough and "substantially undervalues" the company". Right. And we know how ell that worked out.

Yahoo MANAGEMENT, not Yahoo shareholders, turned down Microsoft's overtures. Here, we have shareholders telling management the price you're offering is too low. And they have every right to hold out for any price they want - it's their company, they own it. If Michael Dell wants the entire company so badly, pay the price the other owners want. I don't see why just because Dell makes an offer and declares that it is "fair," the other shareholders must accept it without question or else be branded "greedy." If someone walks up to my door, offers to buy my house at a price he assures me is "fair", I'm under no obligation take his word for it or agree to sell.

The fair price is the price that can be agreed between buyer and seller. If the price that's being asked for by other shareholders is so out of whack that Dell refuses and the deal falls apart, well then, the shareholders will have to bear the consequences of scuttling a deal and live with the risk of holding onto what is potentially a depreciating asset. It's a negotiation played out in public, nothing more, nothing less. The criticism directed at other owners for daring to hold out for a higher price is ridiculous.

And right now, it's Dell and his partners who are being unreasonable. The stock is trading at ~$13.80 which is ABOVE the buyout offer price of $13.65. Granted, the buyout offer had the effect of driving up the stock price as shareholders anticipate that the offer price would be increased but regardless of what's caused the stock price to rise, the fact is that at this point, the stock price is above the buyout price. If it stays that it, it would be utterly irrational for a shareholder to accept the buyout offer. They'd make more money just selling their shares on the open market.

Zak wrote:

Oh, but it would be never enough. Greed knows no limits.

It's greedy because the other shareholders want more but not greedy when Dell lowballs them? Let's pity the poor billionaires Michael Dell, Silver Lake and Microsoft because other billionaires won't sell the company to them at the price they want. Sorry if I can't muster any tears or outrage over this.

How does this sort of thing work? If 50%+1 of the shareholders balk at the sale price, does the thing just fall apart? Or can a group that represents 25% or less put the brakes on the whole thing? Can shareholders be forced to sell back their shares? So if some 80 year old with one share doesn't want to let go of his share, does it go private anyway, but he still gets to keep his share?

The primary source for this type of information is the U.S. Securities and Exchange Commission and the regulatory documents that Dell and the other involved entities such as Southeastern Asset Management file with the SEC, documents that are available via an online search of the SEC.gov Filings (EDGAR) database. For instances, in its DEFA14A filing on Feb. 5, Dell states that, "In addition to the requirement that the holders of a majority of the Company’s outstanding shares vote in favor of the transaction, which will be sought at a special stockholder meeting, the merger agreement further provides that the transaction must be approved by the holders of a majority of the Company’s outstanding shares, excluding shares held by Mr. Dell and certain members of Dell’s management and Board of Directors." You'd have to dig into other filings to identify how many shares Mr. Dell and the others own (probably a different DEF14A filing from earlier in the year) and then subtract that from the whole to get the final percent required. Assuming that enough votes are cast, the going-private transaction will be consummated and all shares will be bought back -- nobody will be able to retain any shares in the publicly traded Dell. Things are currently in the posturing stage, with a couple large shareholders trying to put pressure on Dell and its partners to increase the buyout price. For instance, Southeastern Asset Management in its Schedule 13D filing on Feb. 8 said it believes Dell to have a total corporate value approaching $24.00 per share, with an explanation in the filing of how it got to that dollar amount. Doesn't look like the activist shareholders have the numbers yet to drive the buyout price higher, but time will tell.

Great post, my only comment is that if Southeasern Asset Management really thought Dell was worth $24 a share they should own closer to 51% of the company than the 8.5% they hold since they could have bought up shares for about half what they thought the enterprise value is. Of course they didn't have the capital to do that ($40B total assets under management in 2006 according to Wikipedia) so there real issue is that they're highly leveraged in Dell relative to total assets under management and they don't want to take a realized loss on whatever shares of Dell they hold that are underwater relative to the purchase price.

It's greedy because the other shareholders want more but not greedy when Dell lowballs them? Let's pity the poor billionaires Michael Dell, Silver Lake and Microsoft because other billionaires won't sell the company to them at the price they wants. Sorry if I can't muster any tears or outrage over this.

Ummm....no, it's greedy because just a month ago the market thought that Dell was worth significantly less than what Michael Dell is offering them now.

Also, note that even after this offer, the current price is still below the offered price. So basically, the market STILL believes that Dell isn't worth much more, and is only going that high, because the buyout was offered at a premium.

The only real issue here (which is probably true of all management buys) is a potential conflict of interest, where Dell as CEO might have intentionally suppressed the company so he could make this purchase. That is a different issue altogether.

Ummm....no, it's greedy because just a month ago the market thought that Dell was worth significantly less than what Michael Dell is offering them now.

Apples-and-oranges. Using market price from a month ago as the benchmark of what the "fair" value of Dell's stock is wrong for the simple fact it was missing a key pricing factor - sole control. The market price from a month ago didn't account for sole control - now it does and surprise, it costs extra. Since Dell's offer price is intended to gain sole control of the company and liquidate all other shareholders, it had better offer a premium above market price and other shareholders should want and expect it. The question is what premium is enough - simply paying $0.01 more than market price doesn't make it a "fair" offer, any more than me offering to buy your car for $1 above Blue Book value means you're greedy for refusing.

Quote:

Also, note that even after this offer, the current price is still below the offered price. So basically, the market STILL believes that Dell isn't worth much more, and is only going that high, because the buyout was offered at a premium.

At the close of trading today February 12, Dell's share stood at $13.79. This is ABOVE the offer price of $13.65. This is the greatest hurdle for Dell's offer. It's irrational for other shareholders to accept the offer price now. It doesn't matter if Dell's offer price was once 25% above market price. The market has moved on and now, the offer price is below the market price. As things stand now, Dell is offering other shareholder LESS money to give up control of the company to him than what they can get by selling on the open market. Tell me again who's greedy?

Simply put I see this as the moment these firms saw objection to the deal they balked as well in an effort to raise support to increase the purchase price.

They don't believe that someone else will magically swoop in and offer a higher price, they want to gather enough investors to gain a point of leverage so that Michael and the private investment firm will increase their original offer. Just another attempt to wring as much money from the deal as possible.

t's amusing to read opinions about corporate law from people who have absolutely no idea what they're talking about. It's like 10-year-olds expressing opinions about how brain surgery ought to work.

When you get down to brass tacks, and "Should" then:

If the people are to be governed by law, then law should be simple enough for the vast majority to understand it with no complications. The fact that we NEED a court system to INTERPRET law is a sign of an inherent weakness in the system. Every law written should address a specific thing. There should be nothing else attached to it (no riders). There should be absolutely no loopholes or exceptions of any kind; just 100% black or white.

In short, there should be absolutely no need for lawyers for anything at all, because all law should be simple enough for the average person to completely understand it. Of course, lawyers would object

Saying it is severely undervalued is ridiculous. The buyout is paying market cap +30% on all the outstanding stock! If they thought it was worth so much, why did they not buy tons more stock at what they thought were extremely cheap prices?

t's amusing to read opinions about corporate law from people who have absolutely no idea what they're talking about. It's like 10-year-olds expressing opinions about how brain surgery ought to work.

When you get down to brass tacks, and "Should" then:

If the people are to be governed by law, then law should be simple enough for the vast majority to understand it with no complications. The fact that we NEED a court system to INTERPRET law is a sign of an inherent weakness in the system. Every law written should address a specific thing. There should be nothing else attached to it (no riders). There should be absolutely no loopholes or exceptions of any kind; just 100% black or white.

In short, there should be absolutely no need for lawyers for anything at all, because all law should be simple enough for the average person to completely understand it. Of course, lawyers would object

You're missing my point entirely. People here don't even know what the law SAY or what the precedent is. Just like most people, almost everybody thinks the law should be WHATEVER MAKES SENSE TO HIM. What you're talking about is an entirely different issue, that of laws too complex to understand in many cases. That IS a problem, but it's not even vaguely related to the point I made. If you read through the comments (on this and just about any legal issue), bright people who know NOTHING about the law pontificate about what a result should be, not knowing what the applicable statutes are or why they've been interpreted as they have been. The fact that there are also problems with overly complex law is an entirely different issue. Almost nobody here has a clue what the laws say — or even what the issues are — so it's irrational for them to be expressing opinions about it.

Step 1: Look for other buyers.Step 2: After 90 days of no buyers, lower the current bid by 10%, since there are no other buyers to bad for the shareholders now they want a discountStep 3: ????Step 4: Profit

If Dell was in fact worth twice the asking price, wouldn't the stock value be higher? Wouldn't these institutional investors be snapping up all the shares they could buy at current prices? Seems like posturing to me.